Do you have a plan for retirement? It is not uncommon for a person to reach retirement and not have enough money to sustain his or her life. You may have to take a part-time job to make ends meet if you don't solidify your retirement plan today.
When it comes to retirement, the reality is that you cannot rely on Social Security to provide you with enough income to survive after retirement.
In addition, you can't expect meager retirement savings to be adequate.
CNBC explains that the median retirement savings balance for those 56 to 61 of age in 2016 was only $21,000.
If you consider that the average person spends about $3900 a month on bills and other living expenses, you can easily see that a small amount of savings won't cut it.
If you want your retirement to be a time of relaxation, then you need to start retirement planning now.
The first step to finding the best retirement plans is learning about your options because there are many from which to choose.
Which Retirement Accounts Are Best for You?
Every person has a different situation when it comes to planning for retirement.
Your age plays a huge role in your decisions because you will need to make more money in a shorter time if you are older than someone younger.
You'll need to consider the various types of investment options and how they work to know which would suit your needs the best because what works for someone else may not be right for you.
8 Types of IRA Accounts
Individual Retirement Arrangements are a popular tool people use for retirement planning.
Through an IRA, you can earn and save money. There are eight IRA options.
Forbes explains a traditional IRA is for anyone earning an income and paying income taxes.
You may not have to pay taxes on the money you put into this type of IRA if you do not have a retirement plan through your employer, which makes it nice for self-employed individuals.
There are limits on how much you can put into an IRA based on your age.
You also must leave the money in the account until you are 59 1/2 years old or face penalties.
You will pay taxes when taking money from this type of IRA.The average rate of return for a traditional IRA is 13.2%, according to AARP.
A Roth IRA depends on your income. You must earn under a set amount of money to have this type of IRA.
If you qualify, you won't face taxes for contributions, and you won't pay taxes on withdrawals.
There also is no age limit for taking money penalty-free.SmartAsset states the average return on a Roth IRA is 7% to 10%.
A Simplified Employee Pension IRA is specifically for self-employed individuals or small business owners.
If you have employees in your business, you have to offer the SEP IRA to them if they meet specific requirements.
Requirements include being at least 21 years old, earning more than $600 annually, and being an employee of your business for at least three years within the past five.
You must make contributions to the plan for your employees as they cannot do so themselves.
There is a limit on how much may go into the account.
You can only contribute the same percentage of income into your account that you contribute to your employees' accounts.
The average return rate for an SEP IRA is similar to a traditional IRA.
A Savings Incentive Match Plan for Employees IRA is another type of IRA that you can offer your employees if you own a small business.
The SIMPLE IRA has a few requirements or guidelines.
Your contributions to the IRA accounts of employees must be either 2% of the worker's salary, or you can match the employee's contribution up to 3% of the salary.
You also must contribute to all employees' IRAs. There is a limit on total employee contributions per year.
A SIMPLE IRA is fully vested from the start. Your business can deduct the contributions you make from taxes.
A SIMPLE IRA average return rate is similar to a traditional IRA.
A spousal IRA is a method of using an IRA for married people. Using this approach, you can maximize your retirement savings.
You might use a spousal IRA if your spouse does not earn much money or does not have a job.
What you will do is have your spouse open a ROTH or traditional IRA in his or her name.
The contribution limits come from household income instead of his or her earnings.
Return rates will be the same as the type of IRA you choose.
Self Directed IRA
Investopedia explains a self-directed IRA has various investment alternatives that you don't have with other IRAs.
You manage the IRA, so it is vital that you have some investment knowledge.
A self-directed IRA can be ROTH or traditional. You should expect returns similar to either a ROTH or traditional IRA.
A gold IRA has its basis in gold instead of regular investments, such as stocks and bonds.
In addition to gold, you can also invest in silver or other precious metals. To cash out, you will have to sell the gold.
A gold IRA must be self-directed but can be traditional or Roth. The main IRA rules apply to this type of IRA.
The return rate for this type of IRA is usually higher than others due to gold consistently climbing in value.
Bitcoin IRAs get funding from bitcoins, which is a cryptocurrency. Cryptocurrency is not a legally valid currency, so the IRS does not recognize it as money.
The IRS handles it as property, which will impact the taxation of the Bitcoin IRA. Any IRA that uses Bitcoins is a Bitcoin IRA.
You must have a custodian for your IRA, which can be challenging to find.
However, using Bitcoin can protect you during economic downturns and protect your investment much better than your other holdings.
Because BItcoin is fairly new, there is not a lot of information about the rate of return on your investment.
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401(k) Plans + Employer-Sponsored Retirement Plans
Other common retirement plan options include 401(K) plans or any employer-sponsored retirement plans.
You should note that you do not have to work for someone else, as many of these options also work for self-employed individuals.
A 401(K) is an account where you can put money directly from your paycheck before taxation.
Within your 401(K) portfolio, you have various investments, so your 401(K) worth can go up and down.
You will not pay any taxes on the money in your account until you withdraw it.
It is common practice for employers to match contributions to a 401(K) or offer some money for contributions.
This can help you to grow your account much more quickly than if only you were contributing.The rate of return for 401(K) retirement accounts averages 5% to 8%, according to Investopedia. This applies to all types of 401(K) plans.
If you are self-employed, then you can use a solo 401(K). You cannot have any employees to use this type of account.
It works like a regular 401(K), which means you can contribute as the employer and the employee.
Any contributions you make as the employer are deductible from your business taxes.
You may also deduct contributions on your personal taxes.
A 403(b) account or tax-sheltered annuity is for public school employees and employees of non-profit organizations. It is similar to a 401(K).
Contributions to your account come from your paycheck prior to taxation.
There is also a limit to how much you may put in the account each year, and your employer can make contributions.
This type of plan has a similar return rate to a 401(K).
A 457(b) plan is for employees of state or local governments.
It is quite similar to a 401(K) when it comes to contributions and taxes.
You also have annual contribution limits. The average rate of return for a 457b is similar to a 401(K).
A pension is a retirement plan form your employer that comes from contributions made by your employer.
It is a group plan that your employer puts together for all of its employees. Like a 401(K), the funds in a pension go into investments.
Some pensions may allow you to contribute to them, while your employer only funds others.
Pensions are typically defined-benefit plans or defined-contribution plans.
A defined-benefit plan provides you with a guaranteed payout upon retirement, whereas a defined-contribution plan doesn't.IPE gives the average rate of return for pension plans at between 2.27% and 2.48%
If you are a federal employee or a member of the uniformed services, you can secure a Thrift Savings Plan.
A TSP is much like a 401(K) in how it works. You make contributions pre-tax, and you only pay taxes when withdrawing the money.
There is also a limit on contributions per year.TSP.gov reports a rate of return for TSPs at 2.27% for 2020 ad 5.02% for the 12-month period prior to September 2020.
There is a lot to learn about the different retirement savings accounts from which you may choose.
The following are some common questions people ask before they make final decisions about the best retirement plans.
What is the best thing to invest in for retirement?
What are the two most popular personal retirement plans?
What age should I start saving for retirement?
You have a lot to think about when it comes to choosing the best retirement plans. There are many options.
Fortunately, you can eliminate some of the options specific to certain employment situations.
However, you still have to consider what of the remaining options is the best.
It can be tough to figure out what to do.
The bottom line is that the sooner you make your choice, the better it will be for you in the end.
If you worry about not having enough money for retirement, you should make your selection and start setting up your account today.